Fortis Investments has launched an innovative solution for investors seeking an enhanced return from Euro-zone equities, with a risk profile similar to that of a standard market benchmark.
The new Fundamental 130/30 Euro Strategy is a mix of alpha sources including a fundamental quantitative methodology and variable long/short strategy. According to Fortis, 'this means the fund is complimentary to other, existing products managed by Fortis Investments' Paris-based European Large Cap Equities investment centre'.
The key features of the strategy are as follows:
- Alpha generation via active management: 100% long only portfolio: managed using fundamental weighting concept; +30%/-30% active extension: market neutral long/short.
- Improvement of the information ratio: Fundamental strategies should have better Sharpe ratios than market indices (based on results of backtests); Active extension strategy adds alpha without significantly increasing risk.
- Core Strategy (UCITS III compliant): Benchmark: MSCI Euro index maximum tracking error 4% ex-ante; Net exposure: 100%, Gross exposure variable, max: 160%. Limited leverage.
The strategy is managed by Claire Méhu, Head of Quantitative Management who said: 'The fundamental weighting strategy is a superior way to participate in the equity market return as it better reflects the economic reality of the investment universe and is less vulnerable to periods of speculation.
'The current equity market environment is characterised by low performance dispersion and high correlation between stocks. Long-only constrained portfolios are not able to take full advantage of the limited opportunities available; as a maximum, mid-cap stocks can only be underweighted by their benchmark weight. Short-extension portfolios provide additional alphas, with limited leverage, hence increasing potential information ratios.
'Our chosen approach for the active extension is market neutral, short exposure in the portfolio is matched exactly by a long extension in the same proportion of net asset value (maximum 30%). The active extension is implemented using derivatives to ensure compliance with UCITS III rules'.